Arik Hesseldahl

Recent Posts by Arik Hesseldahl

AMD Lowers Sales Guidance, Citing Weakening Demand for Chips

Chipmaker Advanced Micro Devices did just what a chip maker is expected to do in a market where PC sales are slowing down substantially: It just took down its guidance for the third quarter.

In an announcement that crossed the wires minutes ago, AMD said it expects sales to decrease by about 10 percent from the prior quarter. This is worse the previous guidance, which called for a decline of about 1 percent, give or take a few points.

The company says demand for its chips is “weaker than expected across all product lines” and is being caused by the global macroeconomic environment.

Gross margins, an important indicator of profitability, will be in the neighborhood of 31 percent, down from the prior estimate of 44 percent. Part of the reason for that is a $100 million writedown that’s the result of lower than expected future demand for a certain product.

I just checked in with Patrick Moorhead, head of market research firm MoorInsights and Strategy, who’s also a former AMD marketing exec. He says the company is in about as tough a spot as it has ever been, with the consumer PC market being so weak. “Add to that it doesn’t participate in smartphones or drive enough high-margin server business and it adds up to a challenging environment,” he says. “AMD’s notebook products are quite strong, but it just wasn’t enough to get them across the line.”

AMD’s announcement is below.

AMD Announces Preliminary Third Quarter Results

Revenue Expected to Decrease Approximately 10 Percent Sequentially; Gross Margin Expected to Be Approximately 31 Percent

SUNNYVALE, CA–(Marketwire – Oct 11, 2012) – AMD ( NYSE : AMD ) today announced that revenue for the third quarter ended September 29, 2012 is expected to decrease approximately 10 percent sequentially. The company previously forecasted third quarter 2012 revenue to decrease 1 percent, plus or minus 3 percent, sequentially. The lower than anticipated preliminary revenue results are primarily due to weaker than expected demand across all product lines caused by the challenging macroeconomic environment.

The company now expects third quarter gross margin to be approximately 31 percent; less than the previous expectation of approximately 44 percent primarily due to an inventory write-down of approximately $100 million due to lower anticipated future demand for certain products. Third quarter gross margin was also negatively impacted by weaker than expected demand, which contributed to lower than anticipated average selling prices (ASPs) for the company’s Computing Solutions Group products and lower than expected utilization of its back-end manufacturing facilities.

Operating expenses for the third quarter are expected to decline approximately 7 percent sequentially as a result of tightly controlled expenses in the quarter.

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